Every deal is different, and in today’s market, a one-size-fits-all approach just doesn’t cut it. Big banks don’t have that much flexibility when it comes to unique situations. For the self-employed Canadian, investor who juggles multiple income streams, and families who are simultaneously helping to finance their children’s education, there is a limit to how much the big lenders can help, simply because they have financial situations which look overly complex on paper, and thus, a risk.
Why do Non-Bank Loans Exist in the First Place?
Banks are conservative because they have to be. The way they decide how to lend is how “provable” the income the borrower has is. Can we predict how much is coming in bi-weekly, and therefore, build a future plan around it. This means they look at T4 slips, at least two years of stable income, a spotless debt-to-service ratio. If your income doesn’t line up perfectly with those things, you are deemed risky. Commission-based earnings? Uh oh. Rental income? Oh, maybe not. Funds from family instead of a paycheque. No way. Most lenders shy away from these kinds of things, because they can’t predict it as well as a bi-weekly paycheque (even when there is no job certainty in this economy).
It’s why a different approach to lending makes sense. A non-bank lender, with significant backing, who can review the whole income picture and make non-standard loans. It’s about using reason over rigidity, back-to-basics approach to assess credit risk. Not a one-size-fits-all checklist. Glasslake encourages purchases and refinances on both owner-occupied and investment residential properties, using terms that flex according to the borrower, and not the other way around.
Some Complex Financial Situations that We Lend to
The family-backed purchase. A young person goes off to school and their parents purchase a property for them and their friends to pay off while learning valuable life skills about property management and financial responsibility. Banks find these stressful, because now they need to factor in gifted funds, guarantor income, and future rental offset all at the same time.
The self-employed. Think about that person who works as a consultant or contractor, writing off legitimate business expenses, which looks like a lower net income on paper than they actually earn. If they were to ask a bank for a loan, they’d get punished because of the debt-service calculation. Whereas a non-bank lender like Glasslake is able to look past the tax-optimized number and determine true cash flow and how reasonable the deal is based on the borrower’s history.
The multi-property investor. This person is making a living off of owning properties, with a portfolio of two or three already in play. Going to the bank means being told there’s a cap on how many mortgages can be carried for that single borrower, even going so far as to reduce the qualifying rent income substantially to make the new mortgage seem unreasonable. An agile lender would weigh the whole financial picture honestly to make the deal work, rather than try and poke holes in the deal.
These may sound like outliers, but these are all too common. We see them all the time in the Canadian housing market. We take these deals where sales, underwriting, and structuring come together in clever ways because we know all too well that the automated system used by the banks would fall apart at first blush. Our loans range from 1-7 years, with amortizations extending up to 40 years, and sometimes we tap interest-only options to bridge the gap on a borrower’s cash flow.
Case 1: The Student Rental House Hard-launched by Parents
You’re in Southwestern Ontario and your daughter is starting second year at University. First year in a dorm meant she made lifelong friends and they all want to move in together as they leave the nest of the campus and out into the real world. As parents, you know that renting a room will cost a fortune, with nothing to show for it, so you decide to help her buy a single family dwelling (SFD) she can collect rent from her friends for, and keep them all together. She doesn’t accrue debt or waste money, but pays down a mortgage. It’s a win-win-win for everyone involved. Carrying costs are minimal, and she’s eventually going to be able to cash in the time in that house while renting it out or convert it to a long-term rental which acts as an ongoing investment property.
This is by the book when it comes to a student rental situation, but banks don’t love it. The “income” isn’t from the buyer, the occupancy is a mix of family use and tenants, and the property isn’t standard owner-occupied. But it’s a legitimate, well funded, and well considered approach from fiscally conscious people that just needs a reasonable and flexible lender.
Case 2: The Townhouse as a “Starter” Starter Home
You aren’t looking for a forever home…yet. But you don’t want people all around through the walls and floors, either. It’s not quite that starter home, because it’s not freehold. It’s a townhouse with home-like appeal without the home-like price. Think of newlyweds or a couple with a newborn. They have a few years before they really need all that extra space, and it gives them time to build equity and save before getting the actual starter home.
This is actually super common in Canada at the moment. And financing needs to be supportive, rather than adversarial. As the borrower, you have strong credit, but maybe come in with a smaller down payment. And definitely a tighter budget. The loan you need is simple, without a truckload of extra conditions.
Case 3: The Detached 2-4 Unit Housing You Live In and Rent Out
Here you’re not only purchasing your own home, or buying a property to rent out completely, but something in the middle. You live there, and you rent everything out around you. At the same time paying off the mortgage and earning rental income. It’s a live-in side hustle. A detached 2-4 units is very popular with first-time investors who lean into the tax and lifestyle benefits of owner-occupancy combined with the cash flow of a rental property. But instead of buying two places, you only need one with enough units.
This 2-4 set up is optimal for a specialized lender. It’s owner-occupied but funded in a way that isn’t dependent on keeping a 9-5 job. It’s self-funded and therefore much safer in a volatile job market. Banks, on the other hand, run from these.
Alternative Lenders Help in Big Ways that Big Banks Can’t
All three of these are challenging for the banks: the family funding student housing, the young couple in a starter starter, or the owner-occupant rental property. It’s not even a flaw in their system, it’s just because they cater to the highest demand and strip away everything else. It’s more of a mismatch than anything else. They like simplicity. We like nuance. When you work with a broker who, in turn, works with a non-bank lender that specializes in these cases, you get a much more comfortable fit.
TL;DR: Emily’s One-Minute Version
- A detached SFD can work as a student rental and housing arrangement, offsetting the mortgage for a family funding a child’s education
- A townhouse is more affordable than a first house, with room to grow first
- A detached 2-4 unit property lets a buyer live in one unit while renting the others
- Non-bank lenders allow for self-employment, multi-property portfolios, and family-backed purchases through creative structuring
